Protecting Vulnerable Customers from Potential Financial Abuse

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‍Financial institutions in Australia must prepare their staff to deal with the problem of customer vulnerability.

The Australian Banking Association’s Code of Banking Practice and the Insurance Council of Australia’s General Insurance Code of Practice include significant requirements on subscriber organisations to implement policies and practices to assist customers who may be vulnerable, and to require appropriate staff training to enable these practices to be properly implemented. (The Customer Owned Banking Code of Practice (COBCOP), which is currently being rewritten, will have to contain similar requirements.)

‍Financial institutions face a more complex situation with respect to protecting vulnerable customers

●The Codes recognise more types of vulnerable customer than they used to

●Financial institutions face financial and reputational risks if they fail to manage vulnerable customers appropriately

●External Dispute Resolution schemes have shown themselves willing to require financial institutions to fully compensate customers whose vulnerability was or should have been recognised and responded to

●The elderly customer being preyed on by a greedy relative, or by some conman, remains a significant problem, but other types of vulnerable customers that financial institutions need to be ready to respond to include those affected by

• disability
• mental health conditions;
• physical health conditions;
• family violence;
• language barriers;
• literacy barriers;
• cultural background;
• Aboriginal or Torres Strait Islander status;
• remote location; or
• financial distress.

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‍Risk Management This means that having appropriate systems in place and keeping customer-facing staff trained is part of a financial business’ risk management strategy. Financial services organisations hold a great deal of information about the age and other personal details of their customers. They have sophisticated systems to monitor for possible AML/CTF issues and for possible fraud issues, and these systems also provide data that raises red flags related to financial abuse.  These are reasons why the complaints authorities continue to regard vigilance in this area as one of a financial service provider’s day-to-day costs of doing business and hold providers accountable for failures to undertake proper oversight.  

‍Compliance Training The business must ensure that its own business practices are sensitive to and do not exploit customer vulnerability. Recommendation 1.8 of the Financial Services Royal Commission is about taking steps to ensure financial services providers have appropriate systems to manage the vulnerability of:  

● customers who, by virtue of remoteness or language limitation, face challenges in accessing banking services;

● Indigenous who may have trouble satisfying standard KYC (Know your Customer)
requirements; and  

● the terms and conditions for basic banking accounts.  

‍Staff Awareness Customer contact staff play a significant role in a financial service provider’s response to customer vulnerability: they are often in a position to identify the first signs of vulnerability, for example by noticing that a customer’s demeanour suggests they may be dementing and therefore losing competence to handle their affairs, or by picking up from a customer’s remarks that they are in an unusually stressful situation. The industry codes of conduct recognise that this requires proper staff training. The training should be ongoing and should cover the expanded categories of vulnerability. It should empower staff to recognise the signs, and to understand their obligations with respect to providing appropriate services to vulnerable customers.  

‍GRC Solutions Protecting Vulnerable Customer from Potential Financial Abuse comprises six short modules

Module One: Customers with reduced decision-making capacity

Explain the importance of a banking customer’s decision-making capacity

Discuss how to assess a customer’s decision-making capacity

Describe the causes of reduced decision-making capacity

List possible responses to reduced decision-making capacity Give a general overview of Powers of Attorney  

Module Two: Customers with special needs  

Discuss how to overcome various barriers that may hinder customers getting information about financial products

Explain how to assist customers who may have trouble understanding how financial products work  

Module Three: Customers vulnerable to other parties  

Explain which actions fall into the definition of ‘financial abuse’

Understand how to assess the chances that financial abuse is occurring

Outline some ways a customer can guard themselves against financial abuse  

Outline some ways to respond if you suspect financial abuse is happening  

Module four: Relationship breakdowns and domestic violence  

Explain how to help a customer reorganize their banking after a relationship breakdown  

Understand the background to domestic violence  

Explain how to help a customer open an account when they have too few identification documents

Module Five: Elder financial abuse  

In this module we use case studies of elder financial abuse to learn how to better identify and respond to potential elder financial abuse  

Module Six: Vulnerable customers – loans and guarantees

Explain the risks faced by vulnerable customers when they enter into loans as a co-borrower or guarantor

Outline some ways to protect vulnerable customers when signing up loans  

Case studies